April is approaching and that means tax time! And tax time means IRA season. Now is the time of the year when many people take a moment and consider opening or adding to their IRA accounts. Yes, there could be tax benefits, but even more important is the fact that you are putting away money for your retirement. So, I’m going to take this opportunity to talk about retirement savings and urge you to take action!
First things first, what is an IRA account? An Individual Retirement Arrangement, or IRA, is an account set up to save for retirement that has certain tax advantages. There are basically two types of IRAs: Traditional and Roth. With a Traditional IRA, you may be able to deduct your contribution from your income for tax purposes (depending on your adjusted gross income). Your contributions then grow tax deferred until you pull the money out. When you do pull money out, it is taxable as income**. If you are able to deduct your contribution, this is one of the only things you can do to affect your income for the previous year after December 31st has passed.
Roth IRAs are sort of the inverse of the Traditional IRA. There is no tax deduction for contributions, but when you pull out money it is all tax free**.
So, why do these accounts exist? It’s to incent people to save for their retirement. These tax advantages help make it attractive to put money into long term accounts. These rules also extend to employer sponsored retirement plans, such as 401(k)s and 403(b)s. Often times, employer sponsored retirement plans will have the added incentive of a matching program. This is where your employer will match your contributions up to a certain percentage.
We’ve all heard the statistics about how poorly prepared many Americans are for retirement. And while the numbers vary slightly, they paint a pretty grim picture. Here’s a sample from the U.S. Government Accountability Office (GAO). In a report prepared for the ranking member of the Senate Subcommittee on Primary Health and Retirement Security they found that for households aged 55 and older, 52% have no retirement savings (such as in a 401(k) or IRA)^. Among households aged 55 – 64, 41% had no retirement savings and 55% had less than $25,000^. Finally, they found that Social Security made up most of the income for about half of households age 65 and older^. These statistics just reinforce that we are not saving enough for retirement.
A big step towards working towards a comfortable retirement is to start early. It may seem like there is always a reason to put off investing, but there may be a cost to waiting. The following example is for illustrative purposes only and not an actual investment, nor does it take into account inflation or market fluctuation. Let’s say you make $30,000 and put away 4% of your salary. You get a 4% raise every year and your investments earn an 8% annual return.
-If you started investing right away, 30 years from today you could have $220,944.
-If you wait five years to start investing, 30 years from today you could have $164,878.
That’s a difference of $56,066 even though you only contributed about $6,500 more. It’s because that early money has more time to potentially grow. This is how important time in the market can possibly be to your portfolio.
There is no magic number in terms of retirement savings that will help ensure a comfortable retirement. This is because every person’s retirement is unique. Whether you need $1 million or $10 million will depend on your specific retirement situation. But, suffice it to say that the more you can put away, the more you could potentially have saved for retirement. And, the better chance you have at that dream retirement. So, talk to your financial advisor and make sure your retirement is on track.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
**Qualified distributions from IRA accounts are subject to certain IRS rules. Please consult your tax professional for details
^”RETIREMENT SECURITY – Most Households Approaching Retirement Have Low Savings” – GAO, May 2015
Check the background of this investment professional on FINRA’s BrokerCheck.
A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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